Taxpayers are spending twice as much on private sector fat cat pensions than on public sector pensions says TUC.

 
Taxpayers are paying £2.50 for subsidising the pensions of the richest one per cent of the population for every pound spent on paying pensions to retired public servants such as nurses, teachers and civil servants, according to new research published today (Wednesday 09 Sept 2009) by the TUC.

The findings are revealed in a new campaign pamphlet Decent Pensions for all that says the real pension problem in the UK is not the affordable cost of public sector pensions, but the growth in the number of private sector employees with no pension.

The cost of providing tax relief on pensions in 2007/8 was £37.6 billion according to HMRC figures - ten times the net cost of unfunded public sector pension schemes that are not backed by an investment fund. This is estimated by the Treasury to be £4 billion this year.

Tax relief is heavily skewed towards the better off. Treasury figures reveal that 60 per cent of tax relief goes to higher rate taxpayers, including 25 per cent - nearly £10 billion a year - going to the top one per cent of earners, on more than £150,000 a year.

Decent Pensions for all says:

'One of the standard arguments from those who attack public sector pensions is to ask why modest tax-payers who do not have a pension should pay for the pensions of public sector staff.

'A much better question is whether tax-payers are happy to spend £2.50 on reducing the tax bill of the top one per cent of the population for every pound going towards providing a modest pension to retired nurses, teachers and all the other public sector staff who make a huge contribution to society.'

The pamphlet attacks public sector pension critics who present estimates of the future cost of unfunded public pensions over decades as if they were a bill that has to be paid within 28 days, rather than a continuing and affordable part of public spending.

Describing the big public sector pensions that do not have separate investment funds as unfunded is misleading, the pamphlet argues:

'Public sector employers who offer an unfunded public sector pension scheme for some of their employees pay contributions to a sponsoring government department as if the scheme were funded. Under this system, known as SCAPE (Superannuation

Contributions Adjusted for Past Experience), employer contributions form part of the employer's annual budget. Just as in the private sector, public sector employers have to take the cost of pensions contributions into account in their planning. They are valued using the same FRS17 approach used by private sector DB schemes and publish annual accounts open to all.'

Nor is the public sector paying fat cat pensions. The mean average public sector pension is £7,000 but the majority of public sector pensioners have pensions of less than £5,000. Unlike the private sector where boardrooms typically have special pension schemes for directors, senior public sector staff are in the same pension schemes as the rest of their staff.

The real pensions problem the pamphlet argues is not that public servants get a decent pension, but that a growing proportion of the workforce are not getting any pension from their employer. Nearly two-thirds (62.6 per cent) of the private sector workforce get no employer backed pension.

TUC General Secretary Brendan Barber said: 'The real pension crisis is the growing numbers of workers in the private sector without any kind of pension, who are now paying almost £10 billion a year to subsidise the pensions of the richest one per cent of the population.

'The employer backed campaign against public sector pensions is right that there is an unfair division between the public and private sectors. But it is a strange idea of fairness to argue that because private sector staff have seen big cuts in their pensions, then so must the public sector.

'The challenge is to level up private sector pensions, and to build upon the Chancellor's changes to pensions tax relief for those on more than £150,000 to ensure that tax help with pensions goes to those who need it the most, rather than the least.'

09 September 2009